The final bill for renovating the Dome concert hall in Brighton has reached £38 million.

Brighton and Hove City Council and the Arts Council have agreed to pay £3.2 million more than the anticipated £35 million cost to settle a final demand from contractors Skanska.

Skanska had demanded £5 million for extra costs 18 months after the project was completed but accepted the lower figure following negotiations with the council.

The dispute over the final bill could have ended in a lengthy legal battle, costing millions and meaning auditors scrutinising every penny spent on the renovation - a financial investigation that could have lasted months.

The final bill will be £8 million more than estimated seven years ago.

Councillors have agreed to pump increasing sums of cash into the project since development proposals were first drawn up in 1997.

DevCo, incorporating the Brighton Festival Society and the city council, was set up to run the scheme and it hired contractors Skanska to carry out the work.

In 2002, councillors agreed to pump in £750,000 of public money to finish the work when the restoration scheme ran over budget.

An initial estimate of £30 million three years ago to renovate the 200-year-old building grew to £35 million soon after work started.

In the latest deal, Brighton and Hove City Council has agreed to pay £1.6 million, half the final demand, to avoid costly legal action at a time when cuts are being made to front line services.

Council leader Ken Bodfish said: "There could have been a very messy and complex legal process. It has been very much been in the interest of the city that this was resolved without any uncertainty or question marks over the future of the Dome.

"The alternative was that DevCo went into liquidation and then Skanska could have brought down the festivals group. This in turn would have very serious implications, with the Dome being closed."

Fierce negotiations lasted a year and raised the prospect of the Dome having to shut for years as the dispute worked its way through the courts.

A legal battle with Skanska could have created severe financial problems for DevCo and the festival society.

Despite the financial disputes, the people behind the project say it has been a success.

Nick Dodds, manager of the Dome, said: "The refurbishment was immensely complex. There were many unforeseen problems which resulted in the project taking much longer than anticipated.

"The Museum and Gallery are attracting in excess of 220,000 people a year and Brighton Dome has seen 1,000 performances since it reopened, attracting paying audiences totalling nearly half a million."

Alex Holdaway, spokesman for the Arts Council, said: "We remain supportive of the Brighton Dome and Museum project which has been a massive success."